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Northwestern Mutual said it will pay about $4.7 billion in dividends in 2010 and strengthened its surplus and financial position during 2009.

The Milwaukee-based life insurance and financial firm said the dividends to policy owners are expected to be more than $4.7 billion, an increase of almost $200 million over 2009 and the second-highest in company history.

The policyowner dividends reflect a dividend interest rate of 6.15 percent on most unborrowed permanent life insurance funds, the company said. The company attributed approximately half of the dividends to favorable claims and expense results.

Northwestern Mutual estimated the dividend payout for 2010 includes $120 million paid on term life insurance compared with $83 million in 2009, and $225 million in dividends on individual disability insurance policies, which is an increase of $19 million over the 2009 payout. Northwestern Long Term Care Insurance Company has approved paying an estimated $8 million in dividends to its long-term care policy owners in 2010.

“Given the rotten economy during 2009, we are more than satisfied with what we have accomplished for our policy owners,” said chairman and CEO Edward Zore.

The company said its total surplus, which is a combination of surplus and asset valuation reserve, increased more than $800 million during 2009 to end the year at $14.2 billion. As of year-end 2009, NM’s total surplus represented 11.4 percent of general account insurance reserves.

Northwestern Mutual said it increased its allocation to investment-grade corporate bonds and U.S. agency mortgage-backed securities, and reduced its exposure to equities and high-yield bonds. Ninety percent of the company’s $91 billion bond portfolio was rated as investment-grade as of year-end 2009.

The company said that, as of year-end 2009, it held $26.1 billion in cash and cash equivalents, U.S. Treasuries and other highly liquid government-guaranteed investments.

Total insurance premium revenue, including both new and renewal premiums, totaled $13.1 billion for 2009, a decrease of 4 percent from the prior year. Net investment income was $7.8 billion for 2009, a 1 percent decrease from 2008.

Insurance benefits paid to policy owners and their beneficiaries increased 12 percent for 2009 and totaled $6.8 billion for the year. The company’s operating gain before dividends and taxes was $5.2 billion, a decrease of 3 percent from 2008 due primarily to lower net investment income.

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